Nov 07

When Can You Keep A Security Deposit?

security deposit

When Can You Keep A Security Deposit?

Are you a landlord faced with a tenant who is demanding his security deposit back? Do you know your rights as a landlord?

What happens when your tenant:

  • Informs you that he is moving out and his lease has not expired?
  • Moves out without giving a 30 day notice on a month to month lease?
  • Has a dog that has used the carpet as his toilet?
  • Removes all of the doors in the home?

Do you have to refund his security deposit? Click To Tweet

Do you have to refund his security deposit?

The answer to this question will depend on where you live.   Always keep in mind that laws vary from state to state and even area to area.  Before withholding any security deposit, know your rights and your tenant’s rights in the area that you live in.

Generally speaking, you are allowed to keep the security deposit in the following instances:

  • Early termination of lease
  • Failure to give proper notice to vacate on month to month tenancy
  • Unpaid rent
  • Damage to the property
  • Costs of removing trash and furniture from the property
  • Utilities owed

What you put in your lease will determine what happens in a variety of situations. Click To Tweet

Early Termination of Lease

The landlord can generally keep all or part of the security deposit when the tenant terminates the lease early in order to help cover the costs resulting from the breach of contract.  Remember, the lease is a legally binding contract. Many tenants do not understand this.  What you put in your lease will determine what happens in a variety of situations.  You will find that your lease evolves the longer you are in business as different scenarios pop up over time.

One clause that I strongly recommend that you have in your lease is an early termination clause.  That way there is no doubt as to what your rights are if the tenant moves out before the end of the lease.  Be sure and consult with an attorney about any clauses that you add to your lease.

You can deduct the rent owed from the security deposit in almost every area. Click To Tweet

Failure To Give Proper Notice

Your lease should also specify how much notice the tenant must give in order to vacate the property.  In most states, a 30 day notice to vacate is standard.  It is unacceptable for a tenant to email you and say, “Hey, I moved out over the weekend. I left the keys in the drawer next to the stove.”  Your tenant is required to give proper notice!  You can deduct the rent owed from the security deposit in almost every area.

Example of An Early Termination Clause:

“If the tenant terminates the lease prior to the end of the lease term, or fails to give a 30 day notice to vacate the premises once the lease has reverted to a month to month tenancy, the tenant is responsible for the total rent owed for the remainder of the lease term. The landlord will deduct the amount of rent owed from the tenant’s security deposit. The tenant is responsible for paying any additional rent owed to the landlord for the remainder of the lease, once the security deposit funds are exhausted. Landlord agrees to attempt to mitigate his losses by renting the property to a new tenant as soon as possible.”

This clause clearly states what will happen when the tenant moves out before the end of the lease term or fails to give the proper 30 day notice to vacate on a month to month tenancy.  In most areas, the landlord is required to attempt to mitigate his losses by advertising the house for rent as soon as possible. If there are any legal fees involves, you can also charge the tenant for those as well. 

 

Unpaid Rent

Non-payment of rent is considered to be a breach of the lease contract and in this case, you are almost always allowed to keep all or a portion of the security deposit to cover the unpaid rent.  For some reason, tenants just assume that when they move out early, the security deposit is to be used just for that purpose!  I have tenant tell me all the time “I paid a security deposit and I just figured that I could use that to cover the last month’s rent”. 

They never seem to understand that the security deposit is for damages, clean up and other assorted costs associated with getting the property ready to rent again!  While the security deposit can be used to cover unpaid rent, that is not the intended purpose of collecting it!

 

The true purpose of the security deposit is to cover the costs of repairs. Click To Tweet

Property Damage

The true purpose of the security deposit is to cover the costs of repairs.  It is a rare tenant who moves out of a property and leaves no damage behind!  I have had a few over the years but they are rare indeed!  You will feel disbelief (and maybe some pride) when you have to write out the full amount of the security deposit and mail it back to the tenant!  After all, you found this paragon of a tenant!

I strongly recommend that you do a move in and a move out inspection with your tenant. Bring or email a copy of the move in inspection to the move out inspection. If you have pictures from the move in inspection, either print them out and have them on your phone. You should also provide these to the tenant ahead of the move out. This will set the tone for the move out and you can prove the condition of the property prior to move in.  In this digital age, sharing pictures is very simple and really cuts down on differences of opinion as to the condition of the property.

 

Document The Property Condition

Document the condition of every single room, good and bad.  I recommend having an itemized list of common things with a current price list so that you can easily and quickly figure out what the costs of repairs are.  The cost of typical items like mini blinds, flooring, cabinets doors, etc. are easy to figure out.  Inform the tenant during the move out that he will be charged for anything broken.  If the tenant doesn’t attend the move out inspection, send an itemized list along with pictures for proof. You will also need to explain why he is only getting part of his security deposit back or none!

Damage is different than normal wear and tear.  Small holes in the walls from nails, loose cabinet handles, small carpet stains, scuffed walls and other small defects really are not chargeable items.  Missing doors, large holes in the walls, tears in the flooring, missing smoke detectors, etc. are examples of items you can charge for.

 

Unpaid Utilities

When a tenant moves out, if the utilities are in the company name, you will need to charge these against the security deposit. This is typical in multi-unit buildings in my area where one meter was installed. The utilities are paid by the property manager and then distributed among the tenants for payment.  In my area for example, the water company only bills every 60 days so if a tenant moves out in the middle of the billing cycle, his portion of the water bill will need to be paid by him.  Make a note in these tenant files so that you don’t forget to deduct this charge from the security deposit.

Tip For Landlords

The words “Security Deposit” imply that this money is refundable under the right circumstances.  Most tenants assume they are getting their security deposit back, even if the house is a wreck.  One way to remove this expectation is to charge a “Damage Fee” instead of a “Security or Damage Deposit”.  Substituting the word “Fee” for “Deposit” changes the rules a little bit.  I am not saying to keep money that you shouldn’t keep, but a fee does not imply that this money is refundable.

 

Know Your Rights

Again, know your rights and the rights of tenants in your area.  Laws can vary substantially from area to area.  Do not assume that you can keep a security deposit!  Always document every fee in writing and with pictures just in case you end up in court. 

 

Want to know how to do a move in inspection?  Click here to see more.

 

 

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